Company car or personal car: which option is best for you?

20 September 2021


Personal Tax Planning

As a business owner, when it comes to buying a car you have the choice of buying it through your company or as a personal vehicle. In order to decide which is best, Nolan Gooch, Tax Partner at Haines Watts reveals why it is necessary to consider the tax implications for both the business and the individual alike.

Thinking about personal purchase?

If you decide to go with the personal purchase option, the car will have to be paid for out of taxed income so you will need additional salary or dividends to pay for it.

You won’t qualify for tax relief on the cost of the vehicle or certain running costs, such as insurance and road tax but if you use your personal car for work then you can claim back 45p per mile for the first 10,000 miles you travel for work in a year, through Approved Mileage Allowance Payments (AMAP).

Buying a car through the company

If you’re looking at the implications of a company car, your business could be eligible for relief on the initial cost of the car via capital allowances (the rate of capital allowances will depend on the CO2 emissions of the car) but you will have a taxable benefit in kind (BIK) which is based on the list price and CO2 emissions of the vehicle. This BIK tax is payable each year that you have use of the car.

Your business should get tax relief for the cost of insurance and car tax, but the business mileage you are able to claim is at a significantly lower rate than private ownership as the mileage rate doesn’t just cover fuel but the full running costs of the vehicle.

A company car is likely to be best if the car has very low CO2 emissions and low list price. Personal ownership is preferable if the car has a high list price and high CO2 emissions, however, anywhere in between it is worth doing the calculations.

Understanding tax on electric vehicles

Electric cars are now becoming an increasingly popular choice for company cars, which is hardly surprising considering the Government’s bid to remove all petrol and diesel cars from sale by 2030. The benefits of electric cars shouldn’t be overlooked, attracting a significant lower BIK rate than their petrol and diesel counterparts.

In addition to this, 100% capital allowances may also apply so the cost of the vehicle can be fully written off against profits in the year of purchase, making electric cars a really cost effective option when selecting and running a company car.

If you would like to find out more or would like to chat about your options in relation to business and personal tax planning, get in touch today.